News & Noteworthy

NY Statute of Frauds Bars Enforcement of an Oral Agreement to Pay a Finder of a Business Opportunity

It is not uncommon for a person to act as a finder and receive compensation for presenting a business opportunity to a businessperson.  The two might agree the finder will receive a cash fee or perhaps a percentage of revenue derived from the opportunity.  Sounds great!  The businessperson has a chance to make money from an opportunity she would not have otherwise had, and the finder is compensated for passing along the opportunity.  And it is great – as long as the two parties write down their agreement that the finder will be compensated.

Many people might know that a contract to sell a house in New York is not enforceable unless a signed writing memorializes the terms.  Fewer people likely realize that the same New York statute requires a writing to enforce most agreements for compensation in connection with negotiating or finding a business opportunity.  The New York Statute of Frauds requires a writing to pay a finder for negotiating “the purchase, sale, exchange, renting or leasing … of a business opportunity, business, its good will, inventory, fixtures, or an interest” in a business.  The Statute of Frauds even applies where a person is not directly negotiating, but uses her “connections, ability and knowledge” to arrange meetings between appropriate people and procure contracts.

Acting as a finder of a business opportunity without a written agreement can lead to a situation where the finder’s efforts go entirely unrewarded, while the businessperson legally reaps and keeps all the benefits.  Recent New York plaintiffs learned this lesson the hard way.  In Vanacore v. Vanco Sales LLC, No. 16-CV-1969 (CS), 2017 WL 2790549 (S.D.N.Y. Jun. 27, 2017), the plaintiff presented his cousin with a potential contract to deliver pharmaceutical drugs for a major drug company.  The plaintiff apparently lacked the capital to start the business.  The parties allegedly orally agreed that the cousin would fund the capital to set up the business and pay plaintiff a commission of 15% of revenues for finding the deal and putting it together.  The cousin paid the plaintiff a total of $300,000 over 12 years and then stopped.  Plaintiff sued and defendant moved to dismiss the complaint, arguing that the New York Statute of Frauds bars the alleged oral agreement to pay plaintiff for his role in finding the delivery contract.

The court agreed and dismissed the plaintiff’s claim as barred by the Statute of Frauds.  The court found the plaintiff alleged he acted only as a “finder” by negotiating the business opportunity and securing a delivery contract, while the cousin put up the capital and managed the business.  Without a writing, the Statute of Frauds voided the alleged oral agreement to compensate plaintiff for his efforts as a finder.

If you have an issue with an agreement for compensation relating to finding or sharing a business opportunity, please do not hesitate to contact us.